The Basic Insight: The Law of Rent

Here we have a very simple, ten-screen model in which we explore the Law of Rent. The law of what? You mean you have never heard of it? It's odd, but although the Law of Rent is every bit as fundamental as the laws of supply and demand, or motion, or thermodynamics, a great many people have never heard of it. Why do you suppose that is?

Could it be because the Law of Rent has to do with land, and land is not so important anymore, in today's "information age"? No. Land won't ever become "less important." How could it? Land the physical universe, uncreated by humans is the only ground we can stand on, and the only stuff we can make things out of.

So why, then, have most people never heard of the Law of Rent? That is one of the great "intellectual detective stories" of modern times. To understand why, we must come to grips with this simple principle. So let's go!

1. Different Grades of Land

Here are four sections of a piece of land, with natural resources (fruit trees). Let us assume you can get one bushel of fruit from each tree. On the best section, you can get four bushels in one day. On the next section, with the same day's labor, you can get only three bushels.

I'll take the 4-tree land!